The opinion of the court was delivered by: Judge David H. Coar
MEMORANDUM OPINION AND ORDER
Plaintiffs Glenn Moak, Robert Jansen, and William Berglund are suing Defendants Thomas Roszak and TR Chicago Avenue, Inc. (collectively, "Defendants") for violation of state and federal securities laws, common law fraud, and breach of fiduciary duty. Before this Court is Defendants' motion to dismiss the Amended Complaint. For the reasons set forth below, Defendants' motion is DENIED.
I. FACTUAL BACKGROUND*fn1
Defendant TR Chicago, Inc. is an Illinois Corporation and the general partner of TR Chicago Avenue Partners, L.P. ("TR Chicago"), a limited partnership established for the purchase and development of real estate located at 1210-28 Chicago Avenue and 1234-1238 Chicago Avenue in Evanston, Illinois ("the Chicago Avenue Project").
Defendant Thomas Roszak ("Roszak") was a special limited partner of TR Chicago. At all relevant times, Roszak was also an officer, director, and sole shareholder of TR Chicago, Inc. In addition, Roszak owned a company, Roszak/ADC, L.L.C., that served as the general contractor for the Chicago Avenue project. The company had direct control over the selection of contractors, the scope of the work, the letting of contracts, and payment to itself.
Plaintiffs Glenn Moak, Robert Jansen, and William Berglund (collectively, "Plaintiffs") are individuals and residents of the State of Illinois. In 2000, Moak purchased four units in TR Chicago, investing a total of $100,000 in the partnership. The same year, Jansen purchased two units in TR Chicago (a $50,000 investment) and Berglund purchased one unit (a $25,000 investment). Berglund's company also served as the concrete contractor for the Chicago Avenue project.
B. The Initial Investment
The TR Chicago partnership was formed on February 27, 2000 to acquire and develop the parcels of property identified above. On or about June 6, 2000, TR Chicago published a Confidential Private Placement Memorandum ("PPM") designed to raise capital in the partnership. Pursuant to the PPM, the offering price per unit was $25,000 for a total offering of $2,575,000. The PPM stated that on total revenues of $49,497,029 and projected costs of $31,083,471, after repayment of a construction loan and return of the limited partners' investment, the development was projected to realize a profit of $5,038,558. The PPM was careful to disclose that the forecasts were merely projections upon which no assurances could be made.
From the time of Plaintiffs' investment, Defendants provided Plaintiffs with optimistic reports of the development's progress and its profitable returns to investors. In 2002, according to the Schedule K-1's Plaintiffs received, the partnership realized a taxable profit per unit of approximately $4,612.75. In 2003, according to the K-1's, the profit grew to $10,273. This profit was in paper only since no money had been distributed to the limited partners. Nonetheless, Plaintiffs paid taxes on this profit.
On March 22, 2004, Roszak sent a letter to each partner enclosing that partner's schedule K-1 for 2003. The letter stated that TR Chicago sold a number of units at a profit; it had only ten units left to sell; the project would be finished shortly; and the partners could expect distribution of their capital accounts to begin by the end of 2004. The K-1's accompanying each letter reflected ordinary taxable income to the partners even though the partners had not yet received any distributions.
Less than six months later, on September 10, 2004, Roszak provided Plaintiffs with an "Investor Update" ("Update"). The Update reported "disappointing results for the Chicago Avenue project with investors likely to receive as a final distribution approximately 42% of their invested capital," and losses despite the fact that actual revenues exceeded projected revenues by 23%. Am. Compl., Ex. B at 1. The Update also revealed for the first time that the cost of the project was $46.6 million, rather than the $31.6 million originally disclosed. Defendants attributed the substantial cost increase to various factors, including the economic effects of September 11, 2001, unexplained delays, and increases in the price of materials and labor. The list of actual project costs attached to the Update indicated that the general contractor's fee (for an entity controlled by Roszak) increased over 220% (from $450,000 to $1,453,419.38) and its salaries increased 250% (from $560,000 to $1,628,223.93). In addition, according to the Update, the concrete contractor ...